Corporate income tax (CIT) is South Africa’s third-largest revenue source, contributing roughly 17% of total tax revenue and about 4.3% of GDP. SARS estimates the CIT tax gap to be R79 billion per annum. Improving CIT collection is therefore central to the government’s ability to finance public services and reduce reliance on external financing. Yet until now, South Africa has lacked systematic, firm-level evidence on where CIT non-compliance is concentrated and how it varies across different types of businesses. This study provides the first bottom-up estimate of the corporate tax gap for South Africa. The tax gap is the difference between what firms actually reported and what they should have paid in the absence of any misreporting. The overall estimated tax gap across the five-year period is 13.5% of potential corporate tax revenue.
Key Findings:
- Prior evidence points to large corporate tax revenue losses from multinational tax planning. Drawing on corporate tax returns and audit data, we show that illegal underreporting rates among multinationals tend to be low. This suggests that their tax advantage predominantly arises through legal or legally grey channels. Increased enforcement of MNEs for illegal evasion, without complementary legal reform, will thus not meaningfully reduce their overall tax advantage.
- Firms claiming special economic zone (SEZ) tax benefits show markedly higher evasion rates than other firms of similar size, pointing to a hidden enforcement cost of SEZ incentive programmes.
Policy Recommendations – Addressing MNE tax advantages through law, not enforcement:
The relatively low underreporting rates among multinationals confirm that their tax advantage predominantly arises through legal or legally grey channels. Addressing this requires policy and legislative reform. This may include:
- Reinstating a withholding tax on cross-border service fees,
- Renegotiating problematic tax treaties with reference to the UN Model Double Tax Convention,
- Establishing a domestic list of tax haven jurisdictions and disallowing deductions for expenses arising from transactions with haven- based entities,
- Excluding haven-based firms from eligibility for the participation exemption.
- Expansion of the interagency coordination to cover commercial illicit financial flows
- Active engagement in the UN Framework Convention on International Tax Cooperation to push for a reformed transfer pricing system.
Read the briefing paper below.
About This Study
This policy brief summarises findings from an SA-TIED paper by: Chloé van Biljon (AIDC), Amina Ebrahim (UNU-WIDER), Zoleka Jaxa (SARS), Tumelo Mohale (National Treasury), & Nadine Riedel (University of Münster).
Access the full paper here.
